Pfizer Aims to Outsource More Manufacturing

The drug industry took another step out of the manufacturing business today when a Pfizer official speaking in Hong Kong said the company is looking to outsource 30% of its manufacturing, largely to Asia. Pfizer already outsources about 15% of its manufacturing, Dow Jones Newswires reports.

Pfizer already said this year that it would shut down manufacturing sites in Brooklyn, N.Y., and Omaha, Neb., and sell a third manufacturing site in Germany as part of a plan to cut its work force and save money.

During the fat and happy years of blockbuster drugs and growth, pharma could coast along with manufacturing processes that lagged behind those of more prosaic industries like potato chips and laundry soap, The Wall Street Journal reported a few years back. But as the industry gets pinched by payers and faces a wave of patent expirations on some of its biggest drugs, companies are looking at ways to cut costs — and outsourcing manufacturing is high on the list.

In the past few months, AstraZeneca and GlaxoSmithKline have both announced plans to outsource more manufacturing. Look for other companies to follow suit in the months to come.

Comments (5 of 20)

For decades the United States was effectively the only country that really mattered. We had such a tremendous advantage in wealth, manufacturing power and technology that we could afford to toss away resources, whether it be on rebuilding Europe and Japan, on engaging in the expensive arms race that broke the Soviet economy, or on misguided policies that encouraged U.S. firms to locate their activities abroad. That time is gone. We now owe more than $9,000,000,000,000 to foreign countries because we no longer sell enough things that other countries want to be able to pay for the goods that we import. Our manufacturing operations have largely relocated to other countries – we became a net importer of high technology goods for the first time in 2002, and our deficit has increased each year since then. America’s dominance of technical publications and college degrees is fading quickly and surely.

Globalization was supposed to help our country by opening up foreign markets for our products, but that presupposes that the United States produces things that other people want to buy. As foreign nations with low wage rates have improved their infrastructure, though, companies have naturally moved their manufacturing operations to locations where the wage rates are a fraction of what they are in America. The economists tell us that fact should not worry us, because of the theory of “natural advantage”. Low value, labor intensive production will move to developing nations with low wage rates, but it will be replaced by the production of high value, high technology goods here in the U.S., which will benefit everyone.

If the U.S. had sensible tax policies, that might be true. But we don’t. In our system, a corporation that earns a dollar from manufacturing high technology goods in certain countries will keep the full dollar. If they manufacture the same goods in the United States, they will keep only about 60 cents after federal and state taxes. In other words, simply by locating their high value activities abroad, a company can earn more than 50% more than if they performed the same activities in the U.S. Corporate managers are not stupid. They respond to these incentives, and the rapidly increasing number of well educated foreign workers enables corporations to shift activities to the most tax efficient location. Our “natural advantage” thus dissolves. In direct consequence, the market power of middle class American workers has been fading, leading to nearly 30 years of stagnant real income growth for the bottom 99% of our population.

The responses proposed by Congress and the I.R.S. so far have just made matters worse. The I.R.S. has been attacking U.S. research operations in a way that just encourages corporations to move their R&D to other countries. Chairman Rangel has recently proposed a measure that would encourage multinationals to fire their U.S. administrative personnel and move those activities abroad. Some in Congress have proposed subjecting U.S. multinationals to current world-wide taxation of all of their income, a move that would decrease the value of many companies by 25% or more and cause them to be acquired by foreigners with large reserves of cash in strong currencies. We cannot afford such policies any more.

There is a simple solution. The Shared Economic Growth proposal, explained in detail at http://www.sharedeconomicgrowth.org , would instead provide a strong incentive for corporations to move their valuable operations back inside the U.S. borders, simply by allowing corporations a deduction for dividends that they pay out. At the same time, it would increase the earnings working people receive on their pension savings by over 50%. The proposal is largely self-funding (no voodoo economics here – the corporate tax savings are directly made up for by taxes on the shareholders receiving the dividends), with the balance of the revenue made up by eliminating a couple of unnecessary and unfair distortions in our tax code, and by an extra 7.5% tax on individual income in excess of $500,000 per year. This is a small price to pay for saving our economy, restoring our economic security, giving market power back to the middle class, and boosting pension savings. The problem with the proposal is that it does not fit neatly into either party’s usual set of canned speaking points. Enacting it would require politicians to care more about policy than about politics. Does anyone out there care enough about America’s future to stop bickering and do something useful for a change?

11:58 pm December 3, 2007

Animoose wrote :

Big Pharmas days are numbered. How can they say their drugs are superior to the generics when the brand name drugs are made in China. The FDA did not have the staff to inspect factories in Puerto Rico or Kenilworth , NJ. How are they going to China.

12:02 pm December 3, 2007

Correct wrote :

Kerry:

I said every NEW NDA/ANDA, the word New is critical!
You are talking about the routine two year inspections! (or perhaps for sNDAs) But the messages on this blog seems to imply that the facilities approved via NDA/ANDA may not have been inspected at all!! This is untrue!

9:14 am December 3, 2007

Kerry wrote :

Correct:
To clarify. Not all pharma plants are inspected piror to each and every NDA/ANDA approval. The plants will undergo an initial inspection, but it might be years before another inspection is made. Not all get a routine "2-year" inspection. The FDA retains the right to inspect any GMP facility when it wants.